50/30/20 budget for 2022
Budgeting can sound like a scary thing. Opening up your finances make you cringe seeing how much money is being wasted. But it doesn’t have to be that way. Having a proper budget can make finances so much more manageable. Whether it be stashing money away for a purchase you had your eye on, a vacation you and your family want to take or more importantly getting out of debt.
Creating a budget can help you achieve your goals. It is always good to stash a little cash away for an emergency. Around 60% of the U.S. population lives paycheck to paycheck. Most Americans are 2 paychecks away from losing everything, which is why an emergency fund is so important. Not sacrificing after making a large purchased that was budgeted for is priceless. No need to worry to stress about a sacrifice later. Getting out of debt is a reward for practicing a budget.
- Helps you achieve your financial goals
- builds that emergency fund for an unforeseeable expense
- Helps avoiding and bringing down debt
- removes doubt and guilt when making big purchases
A good place to start budgeting is keeping track of all your expenses so you have an idea where your money is going. For a while I used to keep a little pad in my car whenever I spent money. It was easy for me to see what categories I spent my money on. Another good place to start is to look at old bank statements and credit card statements. See where the money is spent and frivolous spending that can be cut back.
- Alcohol
- Coffee
- atm fees
- frivolous items
Finances and Budgeting can be overwhelming and difficult to keep track of especially if there are multiple accounts and incomes. Budgeting apps and software are a valuable tool. Free Apps like Mint and Truebill are a fantastic way to start. They are free! They can give you a great visual of where your money is going and where it could go. Quicken is a more detailed but paid software program that is great as well.
50/30/20
A great budget plan to start you on your way is the 50/30/20. 50% of income goes to your necessities, 30% for wants, (Netflix, eating out, etc) and the most important 20% savings and debt reduction.
The 1st thing is to calculate your monthly pay after taxes. all other expenses will be calculated later. Don’t subtract insurance or retirement or any other payments just yet, just the gross pay minus taxes.
Needs
Your needs should be pretty straight forward, things you cant live without.
- rent/mortgage
- car/health insurance
- food
- childcare expenses
- transportation (gas, car payment etc)
- utilities
- minimum loan payments
These are the basic things needed to pay to survive. This is 50% of your take home pay after taxes are deducted.
Wants
The wants are kind of a gray area,, stuff you use and have, but can live without. Others maybe not. If your needs are over 50% and you have a car payment, is that car a need or a want? Could you live with a cheaper car? So there is a point to argue with this. But generally this includes:
- Netflix, Hulu etc (monthly subscriptions)
- travel, vacations
- dining out
- entertainment
Savings and Debt
This is the important topic. It is always recommended to have an emergency fund. Some say 3 – 6 months worth of expenses. After that planning for the future, a vacation and most importantly retirement, which you may already be doing with a 401k or IRA. Another part of this section is debt. Getting out of debt will be such a relief and help toward any financial goals. A good way to start is paying down the highest interest accounts like credit cards 1st, starting with the lowest balance and then rolling that payment into the next lowest and so on.
- Build an emergency fund
- plan for retirement
- plan for a big expense in the future
- pay off debt
Now this plan sounds good in theory, but not everyone is in the same situation. If your living expenses (needs) are more then 50% or you have a lower income than it may be harder to stick to this type of budget. You may want to increase your income to cover the expenses.
